In a way, it is. The movie takes elements from various real-life situations and weaves them into the story. However, it also adds fictional elements for dramatic effect.
Yes, 'Brokedown Palace' is based on a true story. It tells the story of two American friends who get caught up in the drug trade while in Thailand. Their naivete and bad decisions lead them into a very difficult situation in a foreign country with a strict legal system regarding drugs.
The true story involves two young American women who went to Thailand. They got involved in a drug - smuggling scheme, probably without fully realizing the seriousness of it. In Thailand, drug laws are very strict, and they were caught. This led to their imprisonment and the struggle to deal with the foreign legal system.